Employer tax credit: On March 24, 2020, HB 550 was signed into state law. HB 550 creates a 20% tax credit for Idaho employers who contribute to an employee’s IDeal account. The tax credit is capped at $500 per employee per year.
Military academy withdrawals: HB 551 aligned Idaho tax law with the federal tax code regarding withdrawals. As a result, IDeal withdrawals made due to attendance at a U.S. military academy will be treated the same as those made due to any other scholarship. In these cases, a withdrawal may be taken up to the amount of the scholarship or grant without being subject to a 10% Federal Penalty Tax imposed on non-qualified withdrawals. Federal and state income taxes on the earnings portion of these withdrawals still apply.
SECURE Act Update
On December 20, 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into federal law. The SECURE Act expands the types of eligible expenses for which assets in 529 Plans can be used, allowing 529 Plan account owners to withdraw assets without adverse federal income tax consequences if such assets are used to pay for:
- Apprenticeship programs: Fees, books, supplies, and equipment required for participation in apprenticeship programs registered and certified with the Secretary of Labor under Section 1 of the National Apprenticeship Act (29 U.S.C. 50).
- Student loan repayments: Principal or interest on any qualified education loan (as defined in Section 221(d) of the Code) of the beneficiary or any of the beneficiary's siblings. The loan repayment provisions apply to repayments up to a lifetime maximum of $10,000 per individual, and Section 221(e)(1) of the Code provides that you may not also take a federal income tax deduction for any interest included in that education loan repayment.
These expenses are also qualified for Idaho state income tax purposes. If you are not an Idaho taxpayer, the state(s) where you pay income tax may differ in its state income tax treatment of withdrawals used for these expenses. As with any change to law, we encourage account owners to consult a qualified tax advisor regarding the application of federal and state tax laws to their particular situation.